Chicago billionaire to take over Pittsburgh casino

July 17, 2008

HARRISBURG — A Chicago real-estate billionaire and his investment partners are poised to take control of a financially troubled Pittsburgh casino where construction work has stalled without money to pay the bills.

Neil Bluhm and the investment firm he helped found, Walton Street Capital LLC, signed an agreement Wednesday morning to assume control of the Majestic Star casino, according to a statement from the new partnership group.

The Pennsylvania Gaming Control Board still must approve any change in ownership and financing, although two Pittsburgh-area state lawmakers contend that the agency should block any attempt to transfer the casino’s ownership from a failed licensee.

Gaming board spokesman Doug Harbach said the agency was reviewing documents it received Wednesday from the new partnership group, and would try soon to schedule a public hearing on the matter.

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He also said the board’s review would address questions being raised about the new ownership agreement, whether it complies with the law on casino ownership and whether the partnership would have to pay another $50 million for the casino license.

The casino’s licensed owner, Detroit businessman Don Barden, acknowledged at a gaming board hearing last week that he is unable to maintain control of the project while finding investors to underwrite the entire $780 million Majestic Star casino.

Under the partnership agreement, Barden will keep a 25 percent stake, with the ability to increase that to nearly 44 percent by investing money in the project. Walton Street Capital, Bluhm and his family members and other business partners will assume the other 75 percent. On Wednesday, neither the new partnership nor the gaming board responded to requests for a breakdown that shows the exact ownership shares.

Walton Street and other investors will pour $120 million into the project, while raising another $650 million or so from investment banks, Bluhm said last week.

In the statement, the partnership said it expects to open the casino next June.

“We look forward to introducing ourselves to Pittsburgh and being a great partner with the city and our neighbors as we build and operate a world class facility of which Pittsburghers can be proud,” partnership CEO Greg Carlin said in the statement.

Gov. Ed Rendell applauded the agreement in a statement Wednesday. He expressed confidence that the gaming board would ensure that it was proper and said he hoped the board’s review would lead to approval of the ownership transfer.

However, Allegheny County Sens. Jane Orie and Jim Ferlo wrote to the gaming board this week to oppose the ownership transfer.

The rushed arrangement to save a casino that is in default of a previous loan is an attempt to manipulate the gaming board and circumvent a competitive application process, Orie and Ferlo said.

Instead, they said the gaming board should consider revoking the license that cost Barden $50 million after he beat out two competitors, and asked the gaming board to publicly disclose the partnership’s financial documents filed with the agency.

“As a matter of public policy, it is not the responsibility of the gaming board to financially rescue failed development plans, rather it is the responsibility of the board to protect the public interest,” the senators wrote.

The gaming board granted Barden a license in December 2006, but has sustained criticism over the decision from state lawmakers who said Barden’s financial foundation was suspect.

Construction work on the casino stalled two weeks ago when Barden ran out of money to pay the prime contractor at the Ohio River site on Pittsburgh’s North Shore.

Bluhm and his family already control the majority of the unbuilt SugarHouse Casino in Philadelphia — which also prompted a question from Orie and Ferlo as to whether the Pittsburgh casino arrangement would violate Pennsylvania’s prohibition on controlling more than one casino.

But SugarHouse has its own problems: It is struggling to get government approval to build on land on the banks of the Delaware River that it does not control. That case is being considered by the state Supreme Court.